Elizabeth Holmes on stage at the Wall Street Journal Digital Live, where the allegedly told a pile of lies.
Reuters/Mike Blake
Elizabeth Holmes on stage at the Wall Street Journal Digital Live, where the allegedly told a pile of lies.
BLOODBATH

Elizabeth Holmes of Theranos could face decades in prison

By Ephrat Livni

Legal documents are notoriously dull. But the June 14 US Department of Justice indictment (pdf) of ex-Theranos chiefs Elizabeth Holmes and Ramesh “Sunny” Balwani is an engaging exception to this rule. Indeed, it’s a bloody good read.

In it, federal prosecutors neatly outline the duo’s alleged scheme to dupe investors, doctors, patients, the press, and public about the company’s “revolutionary” blood-testing technology by relying on a pile of false claims. Here are just a few of the misrepresentations described in the filing:

According to Theranos, its proprietary methods and technologies carried several advantages over conventional blood testing. For example, Theranos claimed that its laboratory infrastructure yielded test results in less time than conventional labs—requiring hours instead of days… and would minimize the risk of human error and generate results with the highest accuracy…

Theranos claimed that its blood tests provided substantial cost savings … and eliminated the need for larger needles and numerous vials of blood…

On its website Theranos displayed a nanotainer of blood on a fingertip with the slogan ‘one tiny drop changes everything.’

One drop might have changed everything but the company couldn’t deliver on its bold claims. Enthusiasm about the revolutionary methods Holmes said Theranos invented was premature. Still, for a few years investors transferred millions of dollars based on this puffery—these wire transfers are the basis for the criminal charges.

Holmes, Theranos’ founder, and Balwani, the former president and chief operating officer, are charged with two counts of conspiracy to commit wire fraud and 9 counts of wire fraud. If convicted, the pair—who were also linked romantically—face fines of $250,000 per count, plus restitution of over $100 million, and decades in prison. The maximum statutory penalty for both conspiracy to commit wire fraud under 18 USC §1349, and for wire fraud itself under 18 USC §1343 is 20 years per count, and each count could be served consecutively.

Holmes stepped down as chief executive just before the indictment was handed down but remains on the company board. She and Balwani were arraigned in a California federal court on June 15 and pled “not guilty” to the offenses.

While Holmes’ attorney declined to comment on the case, Balwani plans to fight the charges at trial. In a statement, his attorney, Jeffrey Coopersmith denies any crimes were committed and argues, “If the federal government is going to start treating business failures as fraud cases, it will stifle the innovation that is the lifeblood the US needs to stay globally competitive.”

It’s unclear if the pun was intended. But it is evident that prosecutors want to make an example of the case—and the duo. Acting US Attorney Alex Tse in the Northern District of California issued a statement, saying:

This district, led by Silicon Valley, is at the center of modern technological innovation and entrepreneurial spirit; capital investment makes that possible.  Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise… [and] the fact that behind the innovation and entrepreneurship are rules of law that require honesty, fair play, and transparency.  This office … will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work.

Prosecutors argue that Holmes and Balwani did not play by the rules. Now, the Department of Justice wants more than “a tiny drop of blood.”